The GST Story

Seven long years later, the government of India finally managed to get the consensus of the Rajya Sabha on the sticky issue of the Goods and Services Tax (GST). What does it really mean for the Indian automotive industry? We try to get to the bottom

AFTER SEVEN YEARS OF ARGUMENTS and eloquent (or not) debates in the hallowed halls of the Indian Parliament, the Goods and Services Tax (GST) has finally been passed in the Rajya Sabha. Ostensibly, the imposition of GST — which also implies the removal of several of the older forms of taxation such as VAT, excise and so on — would give a fillip to Indian industry of which the giant automotive industry is a significant part. At least in theory, the GST seeks to remove the bane of multiple taxation on a product. Naturally, the industry is beaming at the prospect of its imminent introduction on 1 April 2017 once at least half the state assemblies of the country ratify the GST Bill. But how exactly will this new Bill affect us? Let’s take a look.

What is GST?

The proposed GST is an indirect tax that is to be levied on manufacture, sale and consumption of goods and services. Once implemented, it will replace all existing indirect taxes and will be applied on a national level. The biggest difference between GST norms and existing taxation is that the former allows a system of tax credits that helps eliminate multiple taxation.

The most obvious and significant benefit of the proposed GST, therefore, is reduced tax burden on all parties involved in the manufacture, sale and purchase of a product. This means that when applied in the way we perceive it to be applied, your next motorcycle should be cheaper to buy. The fact that the GST will be applicable on the national level will mean that differences in taxation rates and complex taxation structures will be removed. This will also result in faster movement of goods since commercial transport will not have to stop at each state border to pay state-specific taxes as they move goods from the point of manufacture to the point of sale, the latter being outside the state of manufacture almost 80 per cent of the cases.

What Is the Industry Saying?

According to Vinod K Dasari, President of the Society of Indian Automobile Manufacturers (SIAM), the Bill stands for a historical amendment of the tax regime. “The implementation of GST will provide the necessary impetus to this sector and we are confident that with simple and clear tax structure, compliance would be easier and hence there would be reduction in litigation,” said Dasari.

His words find resonance in the world of twowheelers, with Y S Guleria, Senior Vice-president, Honda Motorcycle and Scooter India (HMSI), saying, “The GST is definitely one of the most important tax reforms in the history of India... once implemented, we expect the effective tax rate to come down.” Guleria’s thoughts are reinforced by his counterpart at rival Yamaha Motor India Sales. “Introduction of the GST is a significant step to promote trade and industries, especially for the manufacturing sector. The impact on the automotive sector can only be gauged after the RNR (revenue neutral rate) is announced. However, it is certain that the taxation system will get simplified and more transparent,” said Roy Kurien, Vice-president, Sales and Marketing, Yamaha Motor India.

Concerns

So taxes will get simplified and, hopefully, reduced as well. The industry is raving about it too. Does that mean that the GST is foolproof? Not quite. In fact, SIAM has posted a set of concerns on their website.

For starters, it is not yet clear whether the GST will be the sole domestic indirect tax levied on vehicles. According to SIAM, things like Road Tax or Motor Vehicle Tax should be included in the GST and that there should be no additional tax.

While it is hoped that the GST will be uniform across states, it is still not absolutely clear that it will be so. Given that most vehicles are manufactured in one state but sold outside that same state, SIAM suggests that a uniform tax rate be levied by a single authority nationwide.

Definitions of things such as Capital Goods need to be made uniform to avoid confusion. At the moment the definition of Capital Goods varies under the Central Excise law and state VAT norms.

The body also cites operational complications where tax credits between Central and state GSTs are non-transferable. To avoid such complexities SIAM suggests that cross utilisation of tax credits between the Centre and state be allowed.

Last but not least, SIAM urges the government to protect state-specific incentives under GST. The unobtrusive line on the SIAM website, perhaps, highlights one of the biggest concerns of the industry. At the moment, the automotive manufacturing industry is concentrated in pockets around the country. These are largely the result of individual states wooing the manufacturer with tax sops. It is unclear how the implementation of the GST will affect these sops.

The implementation of GST will provide the necessary impetus to this sector and we are confident that with simple and clear tax structure, compliance would be easier and hence there would be reduction in litigation.” — Vinod K Dasari, President, SIAM

The GST is definitely one of the most important tax reforms in the history of India... once implemented, we expect the effective tax rate to come down.” —Y S Guleria, Senior VP, Sales & Marketing, HMSI

Introduction of the GST is a significant step to promote trade and industries, especially for the manufacturing sector. The impact on the automotive sector can only be gauged after the RNR (revenue neutral rate) is announced. However, it is certain that the taxation system will get simplified and more transparent.” — Roy Kurien, VP, Sales & Marketing, Yamaha Motor India